Because companies like Coinbase and Gemini are U.S.-based exchanges, they must comply with Know Your Customer (KYC) regulations. “You can just go to their website, create an account and then purchase cryptocurrency through that website,” Black said, adding that you’ll have to provide “quite a bit” of personal information to create an account. And as a publicly traded company-it was recently listed on NASDAQ-Coinbase is subject to federal regulation and transparency requirements. Coinbase, for example, is a U.S.-based exchange. When it comes to purchasing and trading, Black recommends newcomers use a cryptocurrency exchange. While those offerings can be innovative, they also come with more risks. The cryptocurrencies with smaller market capitalization tend to be newer entrants. As of late June, the site listed more than 5,400 cryptocurrencies in its tracker. Black suggests as a resource to find crypto listings by market capitalization. Black recommends starting with the largest cryptocurrencies by market capitalization, such as Bitcoin, Ethereum and Tether, since they’ve demonstrated relative longevity and stability. Ether, Binance and Dogecoin are just a few of the thousands in circulation, and it can be difficult to get a handle on where to get started. Miners are basically validating transactions and adding new blocks or transactions to the blockchain record.”īitcoin is hardly the only cryptocurrency available. And then there's a network that updates that ledger, which is the process called mining. “Blockchain is a distributed ledger, so all of the participants are looking at the same ledger. "Typically, we would rely on banks to do all of that accounting,” Black said.
As Black explained, blockchain is a decentralized record keeping ledger through which participants can confirm transactions without the need for a central clearing authority.
To understand how cryptocurrency works, you need to understand blockchain, the technology that drives it. "It's entirely decentralized, supported solely by the Bitcoin network on the internet, and it was created as a way to transfer value on the internet,” Black said. It’s essentially a digital currency, albeit one without government backing or banking system support. The Bitcoin White Paper was published in fall 2008 at the height of the financial crisis. It’s hard to believe that Bitcoin, which is synonymous with cryptocurrency in many people’s minds, has been around for more than a decade. Black served as an economist at the Federal Reserve Board of Governors in Washington.įollowing are highlights of our discussion. To get a handle on this fascinating and complex subject, I recently spoke with Lamont Black, associate professor of finance at DePaul University and the academic director for the school’s Keeley Center for Financial Services. Whatever the case, it’s not likely to go away, especially as central banks begin to explore digital possibilities.
It’s also been vilified as both a haven for criminal behavior and an environmental disaster.
Beyond the Hype: Cryptocurrency and Blockchain TechnologyĬryptocurrency has been touted as a revolution in currency, a great investment and a breakthrough technology.